I applaud Norway's $1bn funding offer to Indonesia. But where will that money go?

Norway's $1 billion of anti-deforestation funding to Indonesia is nothing short of amazing. But we should watch very carefully to see whether the money reaches the right pockets...

Indonesia is probably the world’s most biologically bountiful nation but no country is losing forest faster.

Vast expanses of Indonesian Borneo, Sumatra and New Guinea have been denuded in recent years. Beyond imperiling countless species, the rampant destruction of Indonesian rainforests and carbon-rich peat-forests is spewing enormous quantities of greenhouse gases into the atmosphere.

Is there a way to halt this ecological Armageddon? Countries like Indonesia need to develop economically, so one can hardly expect them to stop logging and felling forests off their own bat. Fortunately, a ray of light has appeared on the horizon. Norway recently offered Indonesia up to $1 billion if it substantially slows its forest loss over the next two years, on top of $1.2 billion Norway has already committed to curb deforestation in other tropical nations.

These deals are an effort to kick-start ‘REDD’ - reducing emissions from deforestation and forest degradation. Around a fifth of all human-caused greenhouse gases come from the rapid felling of tropical forests. Under plans for the successor to the Kyoto Protocol, which should commence in 2012, industrial nations like Norway will be able to pay developing countries like Indonesia to slow forest destruction. In return, the industrial nation could then claim carbon credits for the reduced emissions, helping it to meet its international obligations to slow climate change. It’s potentially a win-win deal for both parties. At the moment, however, Norway isn’t even asking Indonesia for carbon credits - just showing tremendous global leadership in promoting REDD.International concerns

But don’t pop the champagne corks just yet - big challenges lie ahead. Most worrying is Indonesia's patchy record in forest conservation. Immediately before the Bali climate conference in 2007, for instance, the country trumpeted a ban on the draining and clearing of its peat-swamp forests, which create massive carbon emissions. Just two years later the ban was quietly dropped to allow two million hectares of peat-forest to be cleared.

Forestry expert Jeff Sayer cautions that over a billion dollars has already been spent by international donors to promote forest conservation in Indonesia, but so far there is little to show for it. For example, despite a government pledge in 2007 to cut destructive forest burning by half, the number of fires leapt by 59 per cent across the country from 2008 to 2009.

Some worry that Indonesia is trying to have its cake and eat it too. For instance, while no new permits to log or clear forest will be issued, existing permits will be allowed to proceed. These permits cover vast expanses of land - as of 2008, around 26 million hectares for industrial selective logging and at least 11 million hectares for oil palm, rubber and pulpwood plantations. Collectively, this is over 1.5 times the size of the entire United Kingdom, providing much scope for forest loss and degradation to continue.

One way around this conundrum is for the Indonesian government to implement land-swapping - requiring permit holders to establish their new plantations on degraded land, rather than clearing old-growth rainforest. This could yield real benefits, but caution is needed because the Indonesian Ministry of Forestry has often classified even lightly logged forests as 'degraded land' as a pretext for allowing them to be cleared. Other areas of ostensibly degraded land are actually high-value agroforestry plots controlled by local communities, and these also must be protected.Independent monitoring

A particularly welcome feature of the Norway agreement is that it will establish an independent forest-monitoring agency outside the Indonesian Ministry of Forestry, which has long had close ties to industry-political elites in Indonesia. These elites own or control many of the industrial timber firms that are major drivers of forest disruption. An independent monitoring agency should also help to combat illegal logging and forest clearing, which is an enormous problem in the country. Forest experts were pleased when Indonesian President Yudhoyono openly acknowledged the enormous problem of illegal logging and land clearing in the country.

One of the biggest challenges facing the Norway deal is the need to distribute the conservation funds in Indonesia fairly. In addition to compensating the central government, substantial funds must also reach local authorities in forest-rich regions. These authorities control most permits for forest clearing, and those that slow deforestation will have to justly rewarded. In practice this could be difficult, because the funds might become tied up in bureaucratic tangles or the central government might simply absorb the lion's share.

Yet for all the potential hurdles involved, the Norway agreement is truly groundbreaking. It could reduce the influence of the powerful Ministry of Forestry with its pro-industry bias and help place forests more firmly in the control of Indonesian civil society. More broadly, it is helping to show developing nations that forest conservation really can pay important dividends.William Laurance is Distinguished Research Professor and an Australian Laureate Fellow at James Cook University in Cairns, Australia and also holds the Prince Bernhard Chair in International Nature Conservation at the University of Utrecht, Netherlands